In a short- run macroeconomic equilibrium, potential GDP exceeds real GDP, so if aggregate demand does not change the
A) long- run aggregate supply curve will shift leftward as the money wage rate falls.
B) long- run aggregate supply curve will shift leftward as the money wage rate rises.
C) short- run aggregate supply curve will shift rightward as the money wage rate falls.
D) short- run aggregate supply curve will shift leftward as the money wage rate rises.

Question

Quizplus · Accepted Answer

In the short-run, if potential GDP exceeds real GDP, it indicates an output gap where the economy is underperforming. To close this gap, the money wage rate tends to fall, which reduces production costs and shifts the short-run aggregate supply curve rightward, increasing real GDP towards potential GDP.

In a Short- Run Macroeconomic Equilibrium, Potential GDP Exceeds Real